Paul Dunbar is a corporate partner at Vinson & Elkins, and the U.K. Head of Vinson & Elkins Shareholder Activism Response Team. He has been a corporate lawyer for over 10 years and advises public company clients on shareholder activism matters, corporate governance and M&A. He is recognized in the U.K. Legal 500 2016 rankings for M&A: Upper Mid-Market and Premium Deals.
The V&E Shareholder Activism Response team is headed globally by Kai Liekefett and works with companies across all industries in the U.S. and U.K. involved in activist matters. V&E was ranked No. 1 among all law firms for defending public companies against activists in the Thomson Reuters Global Shareholder Activism Scorecard for 2016.
Christopher P. Skroupa: What developments have been seen in board/shareholder engagement in recent years?
Paul Dunbar: There have been two key developments in the U.K. with respect of board/shareholder engagement in recent years. The first has been a gradual increase since the financial crisis in “soft activism” by institutional investors, driven initially by political and media pressure and related regulatory developments, and more recently by developments in the asset management market forcing changes on institutional investors. The focus of such soft activism tends to be on corporate governance—principally board/management structure and executive pay. The U.K.’s corporate governance framework comprises laws, codes of practice and market guidance, the most important being the U.K. Corporate Governance Code, published by the Financial Reporting Council (FRC).
In response to criticism of corporate governance and the lack of engagement by institutional shareholders during the financial crisis, the FRC released updated versions of the U.K. Corporate Governance Code and also introduced the U.K. Stewardship Code in 2010, which applies directly to institutional investors and essentially encourages them to engage more actively with boards of directors. In 2012, a “shareholder spring,” which saw a number of CEOs on U.K. public companies stand down in connection with excessive pay awards, led to the introduction of a binding vote for shareholders on executive directors’ pay every three years through the Enterprise and Regulatory Reform Act 2013. The focus on executive pay has continued and is expected to be in the spotlight again in the Spring 2017 AGM season, not least due to the outcome of the Brexit referendum and the feeling that companies now need to act responsibly on executive pay due to the perception noted by commentators that a significant part of society does not feel that it is sharing in the U.K.’s prosperity.